LIVE MARKETS-Mistaken for a bond proxy, now an opportunity

12 Min Read

* European shares turn mixed, Stoxx down 0.1 pct
* Latest Q4 results offer tailwind for European equities
* Anglo, DIA among most short stocks yet to report Q4
* Don't fret about inflation, for now - Rothschild Wealth
Feb 21 (Reuters) - Welcome to the home for real-time coverage of European equity markets
brought to you by Reuters stocks reporters and anchored today by Kit Rees. Reach her on
Messenger to share your thoughts on market moves: kit.rees.thomsonreuters.com@reuters.net
MISTAKEN FOR A BOND PROXY, NOW AN OPPORTUNITY (1454 GMT)
Some interesting thoughts from analysts at Northern Trust Capital Markets, who point to this
morning's slightly disappointing PMI readings from France and Germany as suggesting that the
data might have peaked "for a time".
For this reason, they think we could see some rotation, and have been taking a look at some
of the recently unloved sectors such as those seen as "bond proxies".
"We are on lookout for category error, for stocks perceived as bond proxies that display
characteristics not commonly associated with bonds like growth, pricing power and inflation
links," they say.
"We are looking for names sold for stylistic reasons, not substantive ones."
So far they have identified road builder Vincim French power utility EDF,
as well as business information provider RELX and software firm Sage within the
"quality" universe.
(Kit Rees)
*****
DO WORRY ABOUT INFLATION... JUST NOT RIGHT NOW (1330 GMT)
Don't waste your time analyzing the "long overdue" correction in early February as you might
miss the bigger picture, and it's not that grim, says Kevin Gardiner from Rothschild Wealth
Management.
What we do know, he says, is that the sell-off began with the Feb. 2 U.S. wage data, which
hit a market that had notched up 15 monthly gains, and was amplified by bets on
volatility-linked products, high frequency and algorithmic trading.
"What we have suggested to our clients is tha0t not only is it (the sell-off) overdue but we
must be careful about not overanalyzing what we think is likely to be a short-term movement",
the bank's global investment strategist told us this morning.
The point is, at this stage in the cycle inflation may be picking up slightly but it's not
about to burst out of the bottle. Yes, he says, central banks are tightening - and that's a good
thing - but global synchronised growth is real and it's translating into corporate profits:
stocks are not worryingly overvalued and there is no need at this stage to restructure
investment portfolios against risk assets.
Even if a new scare linked to rising interest rates were to rattle markets again, when the
dust settles, there would be buying opportunities and portfolio managers at Rothschild Wealth
management have "shopping lists" ready, Gardiner said.
In the longer term however, it's a very different story, Gardiner says.
"If central banks respond to what they perceive to be a low-growth world ... by keeping
monetary policy too lenient for too long, eventually ... they may succeed in reintroducing a bit
more inflation in the system, and a bit more than they want", Gardiner says.
"When inflation does come back, often it comes back in a big way and it gets out of
control", he argues.
"I can find instances when societies have collapsed as a result of inflation ... I can't
find instances in which deflation has materialised on its own and triggered the same sort of
societal effects. It's an asymmetric game."
Below, courtesy of the German National Archives, a German banker taking his money to tellers
during the hyperinflation of the Weimar Republic.
(Julien Ponthus)
*****
ANGLO AMERICAN, DIA AMONG MOST-SHORTED STOCKS SET TO REPORT (1231 GMT)
Talking of earnings, looking at an IHS Markit report of firms which have been shorted the
most ahead of earnings a couple of names such as Anglo American, Vallourec,
DIA and Ingenico stand out.
IHS Markit's analysts say the short interest in Anglo American is due mainly to an arbitrage
trade opportunity after Indian billionaire Anil Agarwal issued bonds to fund his 20 percent
stake in Anglo American via his family trust Volcan Holdings.
Here's IHS Markit's list of the most-shorted European stocks which are due to report this
week:
(Kit Rees)
*****
A Q4 EARNINGS SURPRISE: EUROPE LEAPFROGS THE U.S. (1048 GMT)
European equities may be dipping today but earnings forecasts have seen another big upwards
revision, bringing the fourth-quarter growth rate expected for the STOXX 600 to 16.9
percent, leapfrogging the 15 percent rise seen for the S&P 500.
The forecasts from Thomson Reuters analyst David Aurelio are likely to keep investors upbeat
about prospects for European equity markets, as they attempt to stabilise following a turbulent
start of the month on jitters over volatility and rising global rates.
And there is more: the number of European companies beating earnings expectations has also
risen to 53.4 percent, remaining above the 50 percent "beat" of a typical quarter, but still
lagging the 76 percent beat scored by the S&P 500.
In this second snapshot you can see how Europe's tech sector has delivered an impressive 84
percent earnings beat rate, followed by the 70 percent beat for the energy sector. The laggards
are telecoms and utilities with just 25 percent.
(Danilo Masoni)
*****
OPENING SNAPSHOT: EUROPE DIPS (0841 GMT)
As indicated by stocks futures, European shares have opened lower, with falls among more
defensive-type stocks, and rising U.S. bond yields are weighing on sentiment.
A well-received earnings update for Lloyds -- which included a share buyback of up to 1
billion pounds -- is helping to prop up banking stocks. Telecoms are the one sector seeing
meaningful gains after Telefonica Deutschland and Orange revealed some much
needed good news on top-line growth.
Shares in AA have plunged more than 28 percent after the company cut its dividend
and said that it expected lower profit in 2019.
"While the dividend cut to 2p frees up some cash, risk reward is too negatively skewed on
'show me later' profits," Jefferies analysts said about AA's strategy update.
We've got the flash PMI for the Euro zone coming up at 0900 GMT so we'll be watching that
along with UK employment data due 0930 GMT.
Here's your market snapshot:
(Kit Rees)
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WHAT WE'RE WATCHING AHEAD OF THE OPEN (0752 GMT)
European shares are set for a slight pullback this morning with stocks futures trading
around 0.2 percent lower, though judging by this week’s trading so far, we could well see a push
higher later in the session.
Earnings dominate the agenda again. While figures from bank Lloyds missed estimates,
investors could cheer its 1 billion-pound share buyback, with the shares seen rising as much as
3 percent.
Better times for Orange, which reported its first sales growth in France since 2009, could
buoy the telecom sector.
AA shares are expected to tumble after the roadside recovery firm said it planned
to pay lower dividends.
(Kit Rees)
*****
EUROPEAN HEADLINES: MORNING ROUND-UP (0738 GMT)
Lloyds bank profit rises to record $7.4 billion, but misses estimates
Orange's annual sales in France grow for first time since 2009
Glencore says full-year results 'best ever'
Temenos agrees 1.4 bln pounds deal to buy British software house Fidessa
France's Atos reports organic growth in-line with expectations
Maersk Energy sees uptick in offshore oil drilling, profit still squeezed
OMV's operating profit benefits from higher crude prices
Telefonica Deutschland sees steady 2018, plans dividend increases
Volkswagen, German union IG Metall reach wage agreement
AA to pay lower dividends
AccorHotels' increase in 2017 profits beats expectations
Deutsche Boerse posts rise in net profit despite weak markets
Eramet eyes expansion in electric vehicle metals
UK's Metro Bank reports first annual profit
MTU Aero eyes further profit rise in 2018, subject to A320neo
FirstGroup sees earnings "slightly" lower hit by weather, competition
BRIEF-Wolters Kluwer FY adjusted net profit beats Reuters poll
BRIEF-UK builder Barratt's half-year pre-tax profit rises 6.8 percent
BRIEF-Hotel Chocolat first half revenue and profit up 15 pct​
(Tom Pfeiffer)
*****
EUROPEAN STOCKS FUTURES OPEN LOWER (0711 GMT)
European share futures have opened slightly lower, pointing to a weaker session in which
metals and energy stocks are set to weigh.
We could see a repeat of yesterday, when European stocks gradually warmed up from a weak
start to end the session higher.
Here's your futures snapshot:
(Kit Rees)
*****
EUROPEAN EARNINGS: LLOYDS, GLENCORE, UK HOUSEBUILDERS IN FOCUS (0643 GMT)
As we said earlier, it's going to be another busy day of earnings, especially for UK banks
with Lloyds set to give a full-year update.
A report from Sky News late yesterday said that Lloyds will unveil a 1 billion pound ($1.40
billion) share buyback plan with its annual results, but Lloyds has declined to comment on the
report.
We've also got miner Glencore reporting full-year figures, and a couple of UK
housebuilders giving updates.
More broadly, European fourth-quarter earnings are expected to have increased by 14.6
percent from the same period in 2016, or 11.6 percent excluding the energy sector, according to
data from Thomson Reuters I/B/E/S.
Here's a summary of European firms set to report this morning:
IBE.MC Full Year 2017 Iberdrola SA Earnings and Outlook Update Release
O2Dn.DE Q4 2017 Telefonica Deutschland Holding AG Earnings Release
ORAN.PA Q4 2017 Orange SA Earnings Release
GETP.PA Full Year 2017 Getlink Earnings Release
FGP.L Q3 2018 FirstGroup PLC Trading Statement Release
UTG.L Full Year 2017 Unite Group PLC Earnings Release
BDEV.L Half Year 2018 Barratt Developments PLC Earnings Release
CAPCC.L Full Year 2017 Capital & Counties Properties PLC Earnings Release
OMVV.VI Q4 2017 OMV AG Earnings Release
ACCP.PA Full Year 2017 Accor SA Earnings Release
ATOS.PA Full Year 2017 Atos SE Earnings Release
SATG.DE Q4 2017 Sartorius AG Earnings Release
STDM.PA Q4 2017 Sartorius AG Earnings Release
AGES.BR Q4 2017 Ageas SA Earnings Release
TOM.OL Q4 2017 Tomra Systems ASA Earnings Release
REZT.ST Q4 2017 Rezidor Hotel Group AB Earnings Release
WLSNc.AS Full Year 2017 Wolters Kluwer NV Earnings Release
LLOY.L Full Year 2017 Lloyds Banking Group PLC Earnings Release
GL9.I Full Year 2017 Glanbia PLC Earnings Release
MTXGn.DE Q4 2017 MTU Aero Engines AG Earnings Release
HOCM.L Full Year 2017 Hochschild Mining PLC Earnings Release
GLEN.L Full Year 2017 Glencore PLC Earnings Release
HOTG.DE Full Year 2017 Hochtief AG Earnings Release
VLLP.PA Full Year 2017 Vallourec SA Earnings Release
TCH.PA Full Year 2017 Technicolor SA Earnings Release
(Kit Rees)
*****
MORNING CALL: EUROPEAN SHARES SET TO SLIP (0622 GMT)
Good morning and welcome to Live Markets.
European shares are seen edging lower this morning, according to financial spreadbetters, on
another busy day of earnings.
Spreadbetters expect Germany's DAX to open 40 points lower, France's CAC 20 points lower and
Britain's FTSE 100 5 points lower.
This follows a muted session on Wall Street, though Asian shares gained.
Aside from earnings, focus today will be on flash PMI releases for the Euro zone to see
whether the economic momentum can be sustained in the region.
(Kit Rees)
(Reporting by Danilo Masoni, Helen Reid, Kit Rees and Julien Ponthus)